Daniel Loughran Co. v. Lord Baltimore Candy & Tobacco Co., Inc.

• Decision Date: 04 April 1940
• Docket Number: 32.
• Citation: 12 A.2d 201,178 Md. 38
• Parties: DANIEL LOUGHRAN CO., Inc., et al. v. LORD BALTIMORE CANDY & TOBACCO CO., Inc., et al.
• Court: Maryland Court of Appeals

12 A.2d 201

178 Md. 38

DANIEL LOUGHRAN CO., Inc., et al. v. LORD BALTIMORE CANDY & TOBACCO CO., Inc., et al.

No. 32.

Court of Appeals of Maryland

April 4, 1940

Appeal from Circuit Court No 2 of Baltimore City; Samuel K. Dennis Judge.

Suit by the Daniel Loughran Company and others against the Lord Baltimore Candy & Tobacco Company and others for a determination under the Uniform Declaratory Judgments Act with respect to the validity of a certain statute, and for other relief. From a decree dismissing the bill, the complainants appeal.

Affirmed.

Lawrence B. Fenneman, of Baltimore (Fenneman, Johnson & Cronin, of Baltimore, on the brief), for appellants.

George V. Parkhurst, of Baltimore, for appellees.

Argued before BOND, C.J., and OFFUTT, SLOAN, MITCHELL, JOHNSON, and DELAPLAINE, JJ.

MITCHELL Judge.

The appellants and the appellees in this appeal are all wholesale tobacco distributors engaged in the business of selling at wholesale in the City of Baltimore and elsewhere, among other things, cigarettes of various brands, including especially the brands set forth in the record; and the suit was brought by the appellants against the appellees in the Circuit Court No. 2 of Baltimore City.

The bill allgeges that since the first day of June 1939, the appellees have engaged in the aforesaid business in competition with the appellants in said city, and that contrary to the policy of Chapter 248 of the Acts of 1939, which repealed sections 115 to 121, inclusive, of Article 83 of the Maryland Code, Supp.1935, subtitle Fair Trade Act, they have been selling at wholesale the above mentioned products below the cost price to them as defined by the Act. It is further alleged that such sales or offers to sell at said prices are unfair methods of competition; that they have the effect and result of unfairly diverting trade from the appellants and otherwise injuring them as competitors, and that the appellants have suffered loss and injury and are threatened with further irreparable loss and injury if the appellees are permitted to continue said practice. The relief prayed is, (a) that the Court pass a decree under the Uniform Declaratory Judgments Act, Chapter 294 of the Acts of 1939, declaring the validity of Chapter 248 of the Acts of 1939; (b) that by said decree the status and rights of the appellants under Chapter 248 be defined, and (c) that said decree further declare the right of the appellants to an injunction against the appellees restraining them from selling or offering for sale the merchandise mentioned, or other tobacco products, in the manner complained of, as defined by chapter 248, 'with the intent, effect, or result of unfairly diverting trade from or otherwise injuring a competitor * * * substantially lessening competition, [and] unreasonably restraining trade.' § 116.

To this bill the appellees demurred, and the demurrer challenges the validity of the Act upon the following grounds: (1) That Chapter 248 violates the 14th Amendment to the Constitution of the United States and Article 23 of the Maryland Declaration of Rights in that it attempts to place unusual restrictions upon lawful occupations, is not within the scope of the police power, and unreasonably and arbitrarily interferes with private business; and (2) that said Act is vague, indefinite, and does not properly enunciate any recognized principles of law. The appeal is from the Chancellor's decree sustaining the demurrer and dismissing the bill.

The Act, of course, does not apply to interstate commerce, and is designed to prohibit sales below cost with reference to transactions on the part of wholesale and retail dealers made within the State. The Fair Trade Act was first enacted in this State by Chapter 212 of the Acts of 1935 (subsequently repealed and reenacted by Chapter 239 of the Acts of 1937), and was intended originally to regulate contracts for the sale or resale of commodities bearing trade marks, brands or names of the producers or owners of such commodities, the same being in fair and open competition with like commodities of the same general class produced by others, to the end that the producer or manufacturer could maintain a minimum retail price on his product. That part of the Fair Trade Act relating to the above subject matter has been recently declared constitutional by this Court. Goldsmith v. Mead Johnson & Co., 176 Md. 682, 7 A.2d 176; Old Dearborn Corp. v. Seagram Corp., 299 U.S. 183, 57 S.Ct. 139, 81 L.Ed. 109, 106 A.L.R. 1476; Kunsman v. Max Factor & Co., 299 U.S. 198, 57 S.Ct. 147, 81 L.Ed. 122.

It was not until 1937, upon the passage of Chapter 211 by the Legislature, that any attempt was made in this State to regulate sales below cost; and inasmuch as all of the provisions of Chapter 211 of the Acts of 1937 were repealed by Chapter 248 of the Acts of 1939 and new sections substituted therefor, our consideration of the instant case will be confined to the provisions of the latter Act. The Act defines in intricate detail the method by which the cost price to either the wholesale or retail dealer shall be determined, and applies to all transactions with reference to any product traded in, (a) as between wholesalers and retailers, and (b) as between the latter and consumers, respectively. Such parts of the Act as need be quoted are:

'116. It is hereby declared that advertisement, offer to sell, or sale of any merchandise, either by retailers or wholesalers, at less than cost as defined in this Act, or giving, offering to give or advertising the intent of giving away of any merchandise, either by retailers or wholesalers, or the advertising by retailers or wholesalers of brands or types of merchandise they are not prepared to supply, with the intent, effect, or result of unfairly diverting trade from or otherwise injuring a competitor, or with the result of deceiving any purchaser or prospective purchaser, substantially lessenting competition, unreasonably restraining trade, or tending to create a monopoly in any line of commerce, is an unfair method of competition, contrary to public policy, and in contravention of the policy of this Act.'

'117. Any retailer who shall, in contravention of the policy of this Act, advertise, offer to sell or sell at retail any item of merchandise at less than cost to the retailer as defined in this Act; or any wholesaler who shall, in contravention of the policy of this Act, advertise, offer to sell, or sell at retail any item of merchandise at less than cost to the wholesaler as defined in this Act, or any retailer or wholesaler who shall, in contravention of the policy of this Act, give, offer to give or advertise the intent to give away any merchandise for the purpose of injuring competitors and destroying competition, or to advertise brands or types of merchandise they are not prepared to supply, shall be guilty of a misdemeanor and upon conviction thereof shall be punished by a fine of not more than $500.00. * * *'

'118. In addition to the penalties provided in this Act, the courts of this State are hereby invested with jurisdiction to prevent and restrain violations of this Act, and it shall be the duty of the several state's attorneys, in their respective districts, to institute proceedings in equity to prevent and restrain violations. Any person injured by any violation, or who may be threatened with loss or injury by reason of a violation of this Act, shall be entitled to sue for and have injunctive relief in any court of competent jurisdiction, to prevent, restrain and enjoin such violation or threatened violation. * * *' And Sec. 119 exempts from the provisions of the Act, provided, however, the conditions set forth therein for the disposition thereof by the vendor be followed, (a) merchandise purchased at forced, bankrupt, close-out or other sale outside of the ordinary channels of trade, (b) merchandise sold in bona fide clearance sales, (c) perishable merchandise which must be sold promptly in order to forestall loss, (d) merchandise in imperfect or damaged condition, or the carrying in stock of which is being discontinued by the dealer; merchandise sold (e) upon the final liquidation of any business, (f) for charitable purposes, (g) on contract to governmental agencies, (h) in good faith to meet competition, and (i) at judicial sale.

As will be observed from the quoted excerpts, the remedy against violations of the Act may be either penal or injunctive, or both. And for the purpose of establishing such violation vel non, the Act prescribes a formula by which the wholesale or retail dealer is to calculate the cost to him of the merchandise he sells.

The basic element of this computation is the invoice cost or replacement cost to the dealer in the quantity last purchased by him, whichever is lower. This is modified by certain deductions representing permitted discounts, and various additions representing specified actual or arbitrarily estimated expenses; the figure thus obtained being the minimum price at which the dealer may legally dispose of his wares within this State.

The purpose of the legislation is to prohibit below-cost sales but not otherwise to regulate prices, and it is urged by the appellants that the Act is justified as a valid and reasonable exercise of the police power of the State. On the other hand, it is contended that the Act contravenes the 14th Amendment to the Federal Constitution and Article 23 of the Maryland Declaration of Rights, which guarantee to citizens of this State, property rights of which they shall not be divested in manner other than by 'due process of law' or the 'Law of the Land.' At common law the right of the individual to dispose of his property or his services at such price as he and the purchaser may agree upon is...